Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Custom Truck One Source Inc reported strong demand in infrastructure, rail, and telecom end markets, contributing to double-digit revenue growth for the sixth consecutive quarter in the TES segment.
- The company has made significant inventory investments, positioning it well to meet resilient customer demand for new equipment sales and rental asset sales as demand returns to core utility end markets.
- Custom Truck One Source Inc saw a 170 basis point improvement in segment gross margin compared to Q1 of 2023, reflecting strong demand and production efficiency improvements.
- The company continues to expand geographically with new branch openings and acquisitions, increasing its location count to 40, up from 35 at the end of Q3 last year.
- Custom Truck One Source Inc reaffirmed its revenue guidance for TDS of $1.115 billion to $1.255 billion, reflecting confidence in continued double-digit revenue growth.
Negative Points
- The company experienced project delays in the utility end market due to supply chain issues, regulatory approvals, and funding details, impacting rental revenue and rental asset sales in Q1.
- Custom Truck One Source Inc lowered its revenue guidance for the ERS segment by $50 million to $680 million to $710 million due to near-term challenges in the T&D sector.
- Adjusted EBITDA guidance was also lowered to $400 million to $440 million, reflecting the impact of the current headwinds affecting the transmission and distribution sectors.
- The company reported a decline in average utilization of the rental fleet to just over 73% from almost 84% in Q1 of the previous year, indicating a slowdown in transmission utilization.
- Despite strategic investments in the rental fleet, the company faced challenges in used equipment sales, with lower than expected sales and some pricing pressure in the used equipment market.
Q & A Highlights
Q: What has changed in terms of utility customer communication since the beginning of March? Are there many project delays?
A: (Ryan Mcmonagle - CEO) The communication with utility customers continues to highlight good macro trends, indicating that the work is there but hasn't started yet. The expectation is for opportunities to arise later in the second half of 2024. The delays are primarily in the transmission side and are also affecting rental asset sales in Q1. The environment demands remain strong, but there are short-term headwinds.
Q: With the ERS guidance reduction, is there an expectation for revenue growth in the latter half of the year?
A: (Ryan Mcmonagle - CEO) Yes, despite the current slowdown, there is an expectation for growth in the second half of the year, supported by specific discussions with customers about equipment deployment, moving from general comments to more concrete timelines.
Q: How much lead time do customers typically need if they're going to start a job in three months?
A: (Ryan Mcmonagle - CEO) Utility contractors, especially smaller ones, often operate on a just-in-time delivery model. This underscores the importance of having readily available inventory, which Custom Truck One Source is well-positioned to provide through its one-stop-shop model.
Q: Can you provide details on the financial impact and expectations following the recent acquisitions?
A: (Ryan Mcmonagle - CEO) The acquisitions are reflected in the financials, with the first showing up in Q1 results. These acquisitions strengthen Custom Truck's presence in strategic locations and are expected to be fully operational later in the year, contributing to the company's growth.
Q: What is driving the expected improvement in the utility end market, and is it dependent on a Fed rate cut?
A: (Ryan Mcmonagle - CEO) The improvement is not directly tied to a Fed rate cut but is expected due to pent-up demand and the resolution of supply chain and regulatory issues. Long-term macro drivers like data center investments and grid upgrades continue to support strong demand.
Q: Were there any surprises in the sales of used units in the ERS segment this quarter?
A: (Ryan Mcmonagle - CEO) Yes, the sales came in lower than expected, which was partly due to the timing of customer CapEx deployment. Although there is some pricing pressure in the used equipment market, the company continues to see good residual values and generate substantial gross profit.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
